Globalisation

Joe has another go

A Nobel prize-winner who remains an artist of the impossible

THIS is Joseph Stiglitz's second bite at the topic of globalisation, but his incisors are not as cutting as they were. The passions that excited his first popular book, “Globalisation and its Discontents”, published in 2002, have faded, he writes; calm now prevails. That book featured flames on the cover; this one pictures a bird's nest (in the American edition), and a ring of hearts (in the British one).

Mr Stiglitz's earlier, angrier forays, which began while he was chief economist of the World Bank from 1997 to 2000, created a lot of intramural ill-feeling at the International Monetary Fund (IMF), which was not used to such outspoken criticism from across the street. His indictment of the IMF's policies during the Asian financial crisis outraged the Fund rather less than his claim that it hires third-rank economists from first-rate universities. In his new book he makes only glancing reference to this bad blood, accusing the Fund of trying to discredit him, “rather than engage in intellectual debate”.

Here, he argues that speaking out was a duty, not an indulgence; intellectual consistency demanded no less. Mr Stiglitz still believes that the stewards of the world economy are intellectual slaves to an 18th-century metaphor (“the invisible hand”) and some mid-20th-century mathematics, which formalised Adam Smith's claim that competitive markets square private interests with the public good. Mr Stiglitz won the Nobel prize in 2001 for showing why that claim does not always hold. Economists applaud his work: they think it enriches their theory of markets. Mr Stiglitz, who has never knowingly undersold his wares, thinks it largely invalidates it.

The much-reviled Washington Consensus—with its faith in sound finances, hard money, free trade and limited government—was inspired less by theory than by history, in particular the damage Latin America suffered from deficits, inflation, protectionism and dirigisme. But economists do owe a lot of their mystique to abstract theories the uninitiated do not understand. And they play this card when it suits them. Mr Stiglitz provides a salutary reminder that the algebra does not always favour one side of the globalisation barricades over the other.

But his book does not dwell long on theory. Mr Stiglitz acknowledges the inspiration of his wife, a seasoned reporter, in helping him to see things concretely. Every chapter is leavened with well-turned anecdotes and vignettes. The invisible fruit flies Americans imagined lurking in Mexico's avocado exports illustrate the very real protectionist threat lurking behind many phytosanitary standards; the ups and downs of Baku, an oil town in Azerbaijan, exemplify the curse of natural resources; an account of a visit to Moldova serves as a prelude to a chapter on foreign debt, and a chapter on multinational companies recalls the disgrace of the Bhopal gas leak. Global warming is not just a threat to the “planet”, it is also, more vividly, a threat to Montana's Glacier National Park.

The book also discusses patents, which encourage “me-too” drugs that do not break much new ground, while doing little for research on the diseases of the poor. And it includes an ambitious attempt to describe and fix the international reserve system.

But if the writing is crisp, the arguments are a little soggy. Mr Stiglitz assumes the worst of markets, the best of governments—except, of course, his own. Too often, he wants to have it both ways: his distaste for the IMF has made him suspicious of all technocratic bodies, even to the point where he questions the case for independent central banks. But at the same time he wants to set up international tribunals to rule on unfair tax competition, for example, or health standards. He says that debt relief for the poorest countries is “simply a matter of accounting”, because they could not repay anyway. But he also wants to argue that the burden of red ink has crippled them.

Despite his years in policy circles, he remains an artist of the impossible. Among his proposed solutions, he says that every country should open its markets to any economy that is both smaller and poorer. And any nation that does not impose a carbon tax to combat global warming should face tariffs from other countries that do. He argues that the dollar's role as the world's reserve currency gives America an exorbitant privilege—the ability to borrow heavily and cheaply from the rest of the world—and that Asia's determination to hoard dollars forces America to exploit this privilege. His proposal for “global greenbacks”, an alternative reserve currency issued not by one country, but by international fiat, is inspired by Keynes's intriguing idea of an international clearing union. But if Keynes couldn't usher the idea into reality, Mr Stiglitz certainly can't.

“Making Globalisation Work” is not a bad book but it arrives after books that are better. Jagdish Bhagwati's arguments are more convincing (“In Defence of Globalisation”), Paul Blustein's reporting is more reliable (“And the Money Kept Rolling In and Out”) and Martin Wolf provides a better guide to the economic research (“Why Globalisation Works”). That Mr Stiglitz, a great and original theorist, should spend his time writing a “me-too” globalisation book rather proves his point that markets sometimes misallocate resources.